– The first vendor to support sophisticated volatility surface modelling for more accurate valuation and risk management of credit options
Quantifi, a leading provider of analytics, trading and risk management solutions to the global capital markets, today announced that it is releasing enhancements to its credit index options models in response to client demand for more sophisticated analysis and to support the latest market developments.
The market has witnessed dramatic growth in the CDS index options market over the last year. As liquidity has grown, bid/offer spreads have shrunk and the market has developed to the point where most major banks now actively provide quotes over a range of strikes and expirations. This increased market depth and liquidity has driven a need for more sophisticated models that capture the dynamic of the full volatility surface and observed skew.
“Credit Options are highly flexible instruments and are increasingly being used by clients as an alternative means to hedge credit risk,” commented Rohan Douglas, ceo of Quantifi. “Credit desks and counterparty risk management desks, in particular, have expanded their use of CDS index options. This current increase in activity has helped enhance liquidity, making it possible to trade tighter ranges and higher volumes.”
Quantifi is the recognised market leader in credit derivatives analytics, including a suite of industry standard models for the CDS index options market. This latest set of enhancements will provide volatility surface modelling to capture the existing skew observed in the market and provide more accurate valuation and risk management.
David Kelly, director of Credit Products at Quantifi, says, “The increased use of credit options is not surprising given the importance of credit volatility as an input to CVA pricing and as a significant risk factor in directional credit strategies. We have been working closely with our existing clients to develop flexible tools for pricing CDS index options, consistent with techniques used in other markets. We have also implemented tools to calibrate credit volatilities used in CVA pricing and hedging from CDS index option quotes. We are committed to being a leader in this space.”
